Returns On Capital Are Showing Encouraging Signs At SEACOR Marine Holdings (NYSE:SMHI)
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at SEACOR Marine Holdings (NYSE:SMHI) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on SEACOR Marine Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = US$14m ÷ (US$780m - US$77m) (Based on the trailing twelve months to December 2023).
Therefore, SEACOR Marine Holdings has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 13%.
View our latest analysis for SEACOR Marine Holdings
In the above chart we have measured SEACOR Marine Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for SEACOR Marine Holdings .
What The Trend Of ROCE Can Tell Us
We're delighted to see that SEACOR Marine Holdings is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 2.0% on their capital employed. In regards to capital employed, SEACOR Marine Holdings is using 31% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.
The Bottom Line
In summary, it's great to see that SEACOR Marine Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Considering the stock has delivered 0.2% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.
If you'd like to know about the risks facing SEACOR Marine Holdings, we've discovered 1 warning sign that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
